Ruth's Hospitality Offers Attractively Priced, Sizzling Growth

While many lower-end chain restaurants are struggling to find growth amid still-timid consumer spending behavior, the premium options continue to flourish. One of the leading players in the national high-end scene, Ruth's Hospitality Group (NASDAQ: RUTH  ) , is seeing healthy growth on every level -- from top-line sales to store-level gains. The company behind Ruth's Chris Steak House and Mitchell's Fish Market has a mix of company-owned and franchised stores that are having no problem driving earnings higher, even while costs are on the rise. The company continues to improve its balance sheet and target shareholder returns via a growing dividend. Is there any reason not to consider Ruth's Hospitality Group?

Sizzlin'
At first glance, Ruth's Hospitality showed lower year-over-year sales by a little more than $5 million, but this was entirely due to a calendar shift accounting for $9.2 million, according to management.

The company operates a handful of brands -- Ruth's Chris Steak House, Mitchell's Fish Market, Mitchell's Steak House, and Cameron Steak House, though only the first two are substantial businesses (the other two represent less than 10 restaurants). Earnings and same-store sales for both Ruth's Chris Steak House and Mitchell's Fish Market were higher. Company-owned stores at Ruth's Chris grew 5.5% while Mitchell's grew 2.6%. Investors should note that while Ruth's Chris saw both traffic gains and average check increases, Mitchell's only experienced the latter. Foot traffic declined roughly 1.6%. Franchise income for the company grew 8.3%, driven by new store openings.

As is evident, the company is not seeing near the struggle to juice traffic and sales at its restaurants as chains such as Darden Restaurants'  (NYSE: DRI  )  Olive Garden and Red Lobster (Darden does see strength in its higher market assets). This is likely due to a combination of factors. For one thing, Ruth's Hospitality is a niche, high-end market business. Its two main assets are similar in operating style and attract a similar, business-oriented clientele. The latter is very important as it's a more insulated demographic than the middle market that Darden, DineEquity, Bloomin' Brands, and other similar companies share. A widespread economic downturn will surely hurt the company, but today's tepid consumer spending does not translate to the higher end that Ruth's Hospitality serves.

Adding to that, Ruth's Hospitality is a business focused intently on guest services and the overall experience of visiting one of the restaurants. Compared to the embattled Darden, which serves a wide array of food styles, demographics, and other variables, Ruth's management has a very clear, simple vision for what the company does, and that vision is executed well.

Going higher yet? 
A high-growth industry outperformer would typically warrant the market's undivided and overly optimistic attention, but Ruth's Hospitality actually trades at reasonable levels considering its prospects. At roughly 16 times earnings and a trailing EV/EBITDA of 10.32 times, the company isn't expensive. Darden is not nearly in as good a shape and trades at 17.7 times earnings with an EV/EBITDA of 9.66 times. It does, however, pay a chunky 4.6% dividend.

Given Ruth's steady new store growth with its core Ruth's Chris property and its relatively sparkling balance sheet (just $19 million in debt with $10.5 million in cash), the company offers investors a very attractively priced growth stock. With a main course of capital appreciation and a side dish of growing dividend income, Ruth's Hospitality is looking tasty.  

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